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Lawyers and Investment

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  • Massenot Baptiste

    (Goethe University Frankfurt, Frankfurt am Main, Germany)

Abstract

This paper presents a model of lawyers and investment. Investors use litigation to enforce their financial contracts with entrepreneurs. Litigation is modeled as a contest in which both agents hire lawyers to increase their probability of winning the trial. The issue and the cost of the contest determine how much investors are willing to lend. The model predicts that (i) more lawyers are hired if judicial efficiency is lower or damages are higher; (ii) higher judicial efficiency, higher damages, and tighter restrictions on the supply of lawyers benefit investment. Thus, the number of lawyers can be negatively correlated with economic activity even though lawyers are assumed to be productive.

Suggested Citation

  • Massenot Baptiste, 2014. "Lawyers and Investment," Review of Law & Economics, De Gruyter, vol. 9(3), pages 439-452, January.
    • Handle: RePEc:bpj:rlecon:v:9:y:2014:i:3:p:439-452:n:2
    DOI: 10.1515/rle-2012-0022
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    References listed on IDEAS

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    1. Amanda Carmignani & Silvia Giacomelli, 2010. "Too many lawyers? Litigation in Italian civil courts," Temi di discussione (Economic working papers) 745, Bank of Italy, Economic Research and International Relations Area.
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    4. Massenot, Baptiste, 2011. "Financial development in adversarial and inquisitorial legal systems," Journal of Comparative Economics, Elsevier, vol. 39(4), pages 602-608.
    5. Rosen, Sherwin, 1992. "The Market for Lawyers," Journal of Law and Economics, University of Chicago Press, vol. 35(2), pages 215-246, October.
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    8. Nicola Gennaioli, 2013. "Optimal Contracts With Enforcement Risk," Journal of the European Economic Association, European Economic Association, vol. 11(1), pages 59-82, February.
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    lawyers; litigation; investment;
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